By G.Iderkhangai /The Mongolian Mining Journal. April 2015 /004/
The past few years have convinced Mongolians that industrialisation does not come from populist announcements or grandiose project proposals on paper. They look around and find that whatever little has come up has been in the private sector. All the things the Government promised to build -- the petroleum refinery, the Sainshand Industrial Complex, the metallurgy plant -- remain promises, and nothing more.
The Ministry of Industry was created to help set up industries in the country, to put an end to Mongolia supplying raw material for use in other countries’ industries, and to substitute imports with local manufacture and production. The new Ministry prepared the state policy for industrialisation and submitted it to the State Great Khural in just two months. The remarkable speed was all the more commendable for the quality of the work. Based on thorough research and experts’ inputs, it is indeed a very orderly and visionary document.
The main idea of the policy document is that the backbone of economic development of Mongolia is to be its industrial sector, which would include not only light and heavy industry but also agriculture-based projects and energy production. That way, it looked at the total and ger picture, and not some stand-alone units.
The State Policy took into account a number of decrees and decisions previously made by the State Great Khural and the Government, dating as far back as to the first Law on Technology Transfer in 1998. Four years after that, the State Great Khural issued Decree No.57 which set out the direction for Mongolia’s regional development, and also the law on free zones. The general guidelines for establishing and developing an industrial and technological park were adopted by the State Great Khural in 2003, followed by the Industrializing Mongolia programme in 2009. The next year found Decree No.34 setting out the State policy on high-tech industry.
All this has to be seen together with the State policy on the mineral sector, adopted finally by the Reform Government after being under discussion for so many years. The President’s draft decree to give directions to the Government on accelerating the industrial sector and the State Great Khural’s decree on measures to take to overcome economic difficulties have also helped develop Mongolia’s industrial sector.
There is urgency but no undue haste. Minister of Industry D.Erdenebat would rather be slow than stumble, and has made it clear that until 2016, the priority would be to change the consumer’s mindset and to free the economy from its dependence on mining and diversify the industrial base.
Three stages over 15 years
The policy will be implemented in three stages of five years each, and a different strategy is planned for each. The stages and their main concepts look like the following:
The first stage will be between 2015 and 2020: It will protect national industry, process local raw materials within the country, support export by adopting new technologies and implement industrial policies to find substitutes for import.
The second stage will be between 2020 and 2025: It will create an industrial structure where export dominates the other fields, build foundations for high technology, machines and facilities and chemical plant.
The third stage will be between 2025 and 2030: It will develop knowledge-based industry and begin technology export.
The Ministry plans to list goals once the policy draft is passed by the State Great Khural. They will present the strategies in graphics and show what levels they will be targeting to reach when, and finally in 2030, in regard to light, heavy, small and medium industry, management and technology.
Mining accounted for 58.7% of industrial production in 2013, and processing contributed only 9% to the GDP. This is a very low figure and the Ministry plans to focus on processing rather than on exploration and extraction of deposits. In 2014, 83% of the total export was of mineral resources, 6% was from knitted products and raw and processed felt, leather products took 1%, and metallurgical products took another 1%. The Ministry is determined to end this imbalance.
What will follow formal approval of the policy?
Minister Erdenebat has clarified that legal adjustments will be made once the policy is adopted by the SGK. As a first step, the SGK passed a new law on free zone in its last session, replacing an existing one that was seen to call for too much bureaucratic involvement and allowing only State investment. This did not help in developing the free zone, and actually kept the project frozen for more than 10 years. The new law frees industrial activity in the free zone from third party pressures and from paying import and export taxes. Such liberalisation will have considerable impact on the economy and those doing business in the free zone are particularly excited that they can now strategise for 20-30 years.
Another law that the industrial sector is waiting for is the one on industrialisation prepared by the President’s Office. This provides for regulating industrial relations as a whole and is expected to be passed during the Spring Session of the Parliament.
Other legislations to be discussed in the session include the Law on Industrial Technology Park, the Law on Trade and the Law on Small and Medium Industries.
The State Policy on the Industrial Sector has seven main goals, one of which is “The general industrial layout”. This outline shall be “formulated with reference to the eco-system, human settlement, raw resources and infrastructure policy”, according to the policy document. The Ministry says that this layout will prevent factories coming up in undesignated areas, producing low quality products, unfair competition and unregulated functioning. Locating industries in various aimags to maintain parity has not worked and now industries will be encouraged in five regions based on economic efficiency, human settlement and environmental concerns.
What kind of plants will be built?
More rational location of industries will finally get rid of many unrealistic projects on which lots of money has already been spent, with nothing to show for it. One example is the Sainshand Industrial Complex, the building of which would have required nearly the whole budget of Mongolia. The Ministry wants to build only a steel plant in Sainshand under a concession agreement, and nothing more of the originally proposed complex.
Another issue is the copper smelter. Oyu Tolgoi has begun production,while construction will soon begin at the Tsagaan Suvarga deposit. Erdenet Factory prepared a blueprint for a smelter almost in the last century but nothing has been built yet. The Ministry wants the three major copper mines to put their head together and prepare a feasibility report for one smelter for all of them. According to the resolution recently approved on measures to overcome the present economic difficulties the Government has asked the Ministry to resolve funding issues for the smelter by 2016.
It is thus on the cards that construction of several major plants will begin in 2016. Before that, this year should see work begin on the Tsagaan Suvarga project and the mining and metallurgy complex at Darkhan.
Nothing is still very clear on the much talked about petroleum refinery at Darkhan. The feasibility report prepared by a Japanese company based the refinery on crude from Russia, but nobody is saying anything about this as a viable option in changed times. Another refinery has been proposed with 100% investment from China but the authorities of Mongolia are not too enthusiastic about this ownership structure.
The Government has granted licences for more than 50% of the 15 petroleum refinery projects, but there has been no progress in even one of them. The Ministry has decided to call an international tender for a new feasibility report for a refinery. So there will be a petroleum plant but certainly not within a year.
Governing principles and expected results
Five general principles govern the present indsutrial policy. The first is human health, national security and environmental protection. No matter how industry develops, there will be no compromise with any possible environmental and human health hazard.
Second comes supporting competition in export, import substitution and meeting international and national standards, seen by some as the “soul” of the policy. It is the goal of Mongolia to cease being an importer nation and make final products that meet world standards, adopting international know-how.
The purpose of the industrial policy has been defined as creation of goods and services with high and advanced technology with high competency and developing the industrial sector to become the leading sector of the country. There are seven smaller goals linked to this.
Five factors will determine the final result to be achieved by the policy. The first of these is that the life of the people must improve and national security must be stronger. The next is that the nation will become an exporter country after meeting domestic needs, which presupposes improved international competitiveness in our products and services.
Another targeted result is to increase the industrial sector’s percentage in GDP. Establishing technological parks and developing industrial and logistical networks will follow.
The concept behind the policy document spreads over four basic areas. It says at one place, “The industrial sector will lead the economic progress of Mongolia by developing industries and services that are based on the relations between the State, science and business, directed to export and with high technology and high competency”, and at another, “Developing the industrial sector will be directed to create knowledge, value-added products and service to provide sustainable development rather than agricultural raw resrouces and mineral extraction”. This “sustainable development” is a new concept in Mongolian planning.
Not harming the environment should be the No.1 priority in heavy industry, while small and medium industries will generate a lot of employment, thereby solving environmental and social issues.